Aussie heavyweight calls for KiwiSaver compulsion

New Zealand should make KiwiSaver compulsory and get rid of the early withdrawal option for first-home buyers, a former Australian Cabinet Minister says.

Tuesday, September 18th 2012, 7:35AM 2 Comments

by Niko Kloeten

Nick Sherry, who was Australia’s first Minister for Superannuation, told the Institute of Financial Professionals (INFINZ) conference, what New Zealand should do to boost savings and capital markets and improve retirement incomes.

Sherry, who recently ended his 22-year stint in the Australian Senate, said that KiwiSaver was a good start but compulsory superannuation such as what Australia has would be a better option.

“I’m a strong advocate of compulsion for the simple, practical reason that the majority of people do not save for retirement. There’s a significant level of inertia and the only way to overcome that is to have a compulsory system,” he said.

Compulsory super is also an “important social policy” that “adds to retirement incomes in Australia in a sustainable way.”

KiwiSaver should be made compulsory because it would significantly reduce the need for government subsidies, Sherry said, citing research that showed about 43% of the total funds under management in the scheme had come from government tax credits.

“You have to ask whether at least some of that money can put to better purpose in the government context,” he said.

Sherry said contribution rates would have to be low initially if KiwiSaver were made compulsory; for instance, Australia’s compulsory superannuation started at only a 3% contribution rate.

Compulsory super, including raising the minimum contribution rate from 9% to 12%, was one of the only issues on which there was bipartisan political agreement in Australia, he said.

Sherry had other advice on how to improve KiwiSaver: ditch the first-home buyer early withdrawal option.

“I’m not supporter of early access for first home ownership as it diverts funds from retirement savings and adds to administration costs,” he said.

Helping first-home buyers was a “legitimate government policy”, he said, but it “should be administered by a separate set of incentives.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 18 September 2012 at 9:33 am david whyte said:

Common sense from Australia! Despite the squeals from the usual quarters, Mr Sherry's observations are valid and worthy of consideration. Early access for any purpose other than limited occupational earning capacity should be abandoned. The hardship options are also prejudicial and until retirement benefit provision is embraced - and locked-in funding is installed and protected - NZ will remain a distant second to Australia in this regard.

On 19 September 2012 at 9:26 am Anon said:

I'll give John Key a call and suggest it would be prudent to follow Australia's lead and asset test the pensioners for NZ Super and to raise the retirement age from 65 to 67 in 2023.

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